A recent DBS Group study, analysing data from two million customers, highlighted that younger investors—Generation Z and Millennials, aged 25 to 44—are at risk of falling behind when it comes to saving for retirement.

According to the research, a retiree in Singapore aged 65 will need at least S$550,000 to cover basic living expenses for the following two decades. If one wants to enjoy travel or personal hobbies, that figure rises to around S$1.3 million.

The challenge is that many young professionals are setting aside only a small portion of their income for investments, making it difficult to reach the S$550,000 benchmark by retirement age.

Start saving and investing early The study found that those aged 25 to 44 invest just 15% to 17% of their monthly salary—the lowest among pre-retirement groups. Comparatively, people aged 45 to 54 invest around 30%, while those aged 55 to 64 dedicate nearly half of their income to investments.

Another key issue is conservatism in investment choices. Young investors typically allocate 37% to 44% of their funds into Treasury Bills (T-Bills) and another 13% to 15% into Singapore Savings Bonds (SSBs). While safe, these instruments offer returns lower than Singapore’s long-term inflation rate of 3% to 4%.

Currently, the six-month T-bill cut-off rate is 2.9%, while SSBs provide an average 10-year yield of 2.97%. Investing heavily in these products may erode purchasing power over time.

Increase your allocation over time It is understandable that early-career professionals may earn less and feel limited in how much they can invest. However, consciously saving a higher portion of your salary is essential. Avoid “lifestyle inflation”—the tendency to upgrade your lifestyle immediately after a pay rise.

Instead, redirect any salary increments or bonuses into investments. This ensures your wealth grows steadily without being consumed by branded items, gadgets, or trends.

Focus on growth investments Once you commit to investing more, consider assets that can outpace inflation. Growth stocks in the US, such as Apple, Microsoft, Meta Platforms, Lululemon, Starbucks, Salesforce, and DocuSign, offer potential for long-term capital appreciation.

In Singapore, stocks like iFAST Corporation Limited and DBS have demonstrated consistent earnings growth, making them strong candidates for your portfolio.

Include dividend-paying stocks While growth stocks are crucial for building wealth, dividend-paying stocks generate passive income, supplementing your active earnings. Dividends provide extra cash flow, which can be reinvested or used for expenses, and act as a buffer during emergencies.

Consider blue-chip REITs like CapitaLand Integrated Commercial Trust and Mapletree Industrial Trust, or dividend-paying companies such as Haw Par Corporation, Singtel, VICOM, and Riverstone.

Leverage the power of compounding The earlier you start investing, the greater the compounding effect on your wealth. By consistently saving, allocating funds to growth and dividend stocks, and reinvesting dividends, you can steadily build a retirement fund of at least S$550,000.

Keep in mind that inflation may reduce the real value of your savings over time, so aiming higher than S$550,000 is wise. Stay disciplined, avoid lifestyle creep, and prioritise investment growth.

If you follow these strategies consistently, you can secure a comfortable retirement and enjoy financial independence in your golden years.